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Building a Better Budget, Part 2: Forecasting Sales

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SKILL SETS: BUDGETING

Building a Better Budget, Part 2: Forecasting Sales

by Marion Gropen

For many of us, forecasting sales is the hardest part of planning our way into publishing success. I divide this task into three parts:

1. Collect and review information you already have—specifically, information on past backlist sales and estimates you have made about sales of current and future frontlist titles. At the same time, collect your marketing plans for the next year. When you have all the information and estimates, review the estimated sales, and update them.

2. Turn total sales estimates into monthly sales numbers, and compile all of them into one overarching sales forecast.

3. Make major strategic and tactical decisions based on those forecasts and adjust the estimates as required by those decisions.

Collecting Information

Collecting the frontlist sales projections should be the simplest part of this process. Most publishers do at least one single title P&L before acquiring a manuscript, and another one right before releasing it. For your frontlist, simply exhume the latest of these estimates.

For the backlist, gather your sales reports, import 12 to 24 months’ worth into a spreadsheet, and you’ll have all the numbers you need to estimate future sales. It’s generally enough to project sales for the backlist as a whole, rather than for each individual title, if you have a fair number of them.

If it has been some time since some of your frontlist sales estimates were compiled, conditions may have changed. Or maybe the estimates were made by someone who was in love with a project, or skeptical about it, and need to be changed. Or, worse, maybe your marketing department couldn’t quite figure out how to handle a particular book or line of books because the content was intended for an unfamiliar marketing segment.

This is the time to force your staff to inject a note of realism. Look first for realism in your marketing department. Marketing plans may be as easy to find as sales numbers, but most publishers don’t track these documents as closely as their sales reports. In some houses, the plans remain in the marketing manager’s head until needed, which makes them especially hard to gather—unless you’re the marketing manager.

Make sure that you have written plans, each with assessments of the target audience, the fraction of that audience that is likely to purchase based on planned exposure to your title, and the likely margin generated by the marketing campaign. The margin here is the sales generated less the cost of goods sold, the cost of selling them, and the cost of the marketing itself.

If you aren’t going to get more out of a campaign than you put into it, there’s no point in doing it.

Look at all your estimates for signs of unfounded optimism, or the less common pessimism. Many publishing companies have a tradition of asking for title P&Ls but allowing editors to adjust their sales numbers as necessary to “make the numbers work.” That’s a potentially deadly habit. Editors may not be as attached to manuscripts as authors are, but objectivity can be hard for them. Doing these calculations can help you inject corrective caution into your budget.

Determining Monthly Sales

For the second part of the budgeting process—the one that involves projecting monthly sales from the total and then aggregating them into an overall sales forecast—start with a projection of the sales pattern of each type of title you release.

Let’s say that you have three different types of books. Some sell rather quickly but stop selling equally quickly. They act more or less like trade books from large houses. Others start slowly, build a little, and then taper off. And those in the third group start slowly but build momentum and look as if they’ll become evergreen backlist.

You can graph those three patterns, and have them look something like this: 

 

Some companies know their sales patterns in a quantitative way. They can skip this next step.

Others know, quite well, the “feel” of the pattern, but they don’t have a way to put numbers to it. For them, drawing a graph that “looks right” is a good first step.

Draw your own company’s sales patterns on graph paper, freehand. When the shape looks right, simply count the total number of squares under your curve. In the example above, the “fast starter” line has 4+7+4+2+2+2+2+1+0+–2–1–1= 20 boxes under the line. Next, add a horizontal axis showing the number of months after the pub date, as in the example above. Then jot down the number of boxes under the line at each month. That’s 4 boxes for the first month in the “fast starter” line above. Divide the number for each month by the total, and you have the percent sold in each month, for each type of curve.

Whether you already have the percentages worked out, or you were drawing this for the first time now, you end up with something like the chart above. In each month after the book releases, you sell a certain percentage of the first year’s total sales. You use this to convert the projected first year’s sales into monthly numbers.

For the graph used as an example above, that will look something like:

Month

Fast starter

Slow

Evergreen

1

20%

7%

6%

2

35%

10%

7%

3

20%

10%

7%

4

10%

10%

8%

5

10%

15%

8%

6

10%

12%

8%

7

10%

10%

8%

8

5%

8%

8%

9

0%

6%

10%

10

–10%

6%

10%

11

–5%

3%

10%

12

–5%

3%

10%

Total

100%

100%

100%

Spread the total sales over each month by multiplying the first year total by the appropriate month’s percentage. When you have monthly sales projections from the month of release for each title, you can then assemble your frontlist and backlist sales projections into a monthly sales forecast for the next year—or, better, the next two years.

All the rest of your direct expenses will be keyed to that sales forecast. This is the most difficult and critical part of your budget building. Double-check it for errors, and for plausibility.

Making Decisions

The last part of our sales budgeting process is the easiest to skip, but also the most productive. Look for strategic or tactical changes you could make to your whole operation that would either decrease your cost of selling, or increase your sales, or both.

Examples might include shifting to another format, adding a line of books that complements a current line, or changing your distribution setup.

When you’re building your budget, you have an unmatched opportunity to see the big picture while you’re seeing all the small details. So, take advantage of that chance.

As you step back to look at the big picture, take nothing for granted. Question all your assumptions. Look for hidden barriers, expenses, and opportunities. Look also for changes that are likely to occur. Lay the groundwork for your response to things like a change in the most popular format or type of content in your market segment. Think about defining your audience differently, perhaps by type of need, rather than by age or other external factors.

This part of the process will be different for every company, but whatever questions you ask, now is the time to look over the horizon and play with big ideas before deciding whether they’re practical. Go wild first, and then trim back.

If you find a way or ways to improve your strategy and tactics, adjust each affected sales forecast. If you build a spreadsheet that carries your changes through from one page to the next, this should be easy. Check to be sure that the changes you contemplate really will improve your bottom line.

General Guidelines

So, now you have a sales budget. And you have taken a good long look at the far future, too. There are some cautions to be considered before we call your budget finished.

Don’t accept a number pulled out of the air. Far too many publishing companies end up needing my financial advice because they have relied on gut feelings rather than objective calculations.

Don’t rely too heavily on calculations either. Numbers on a spreadsheet can induce faith. But they’re only estimates, projections of an unknown future.

Publishing is high-stakes gambling. It’s exhilarating. It’s addictive. It’s easy to lose your shirt. Think carefully about the risk. Be aware that even the sure thing isn’t certain.

And tune in next month for the next segment of our budget building odyssey: Expenses.

Marion Gropen consults with micro- to medium-sized publishers on financial and operational issues and offers consultations by the question for smaller publishing companies. She recently published the first part of her e-book series, The Profitable Publisher. To learn more, visit GropenAssoc.com. To contact her, email Marion.Gropen@GropenAssoc.com or call 888/3GROPEN toll-free.

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